Michelle Baddeley

Neural mechanisms of observational learning

Individuals can learn by interacting with the environment and experiencing a difference between predicted and obtained outcomes (prediction error). However, many species also learn by observing the actions and outcomes of others. In contrast to individual learning, observational learning cannot be based on directly experienced outcome prediction errors. Accordingly, the behavioral and neural mechanisms of learning through observation remain elusive. Here we propose that human observational learning can be explained by two previously uncharacterized forms of prediction error, observational action prediction errors (the actual minus the predicted choice of others) and observational outcome prediction errors (the actual minus predicted outcome received by others). In a functional MRI experiment, we found that brain activity in the dorsolateral prefrontal cortex and the ventromedial prefrontal cortex respectively corresponded to these two distinct observational learning signals.

The Relationship between Capital Stock, Unemployment and Wages in Nine EMU Countries

The focus of this paper is to investigate the importance of the capital stock in the determination of wages and unemployment in a range of EMU countries and to compare the results across countries. A time-series analysis is conducted in the case of nine euro area countries, which were selected solely on the basis of data availability and consistency: Austria, Belgium, Finland, France, Germany, Italy, Ireland, the Netherlands and Spain. The paper begins with a short review of the literature on capital stock and unemployment, before it deals with the theoretical model. This is followed by estimation and testing of the theoretical model put forward, using both time-series and panel data. The results are supportive of the main hypothesis of the paper: capital stock is an important determinant of unemployment and wages in the countries considered for the purposes of the paper.

Herding, social influence and economic decision-making: socio-psychological and neuroscientific analyses.

Typically, modern economics has steered away from the analysis of sociological and psychological factors and has focused on narrow behavioural assumptions in which expectations are formed on the basis of mathematical algorithms. Blending together ideas from the social and behavioural sciences, this paper argues that the behavioural approach adopted in most economic analysis, in its neglect of sociological and psychological forces and its simplistically dichotomous categorization of behaviour as either rational or not rational, is too narrow and stark. Behaviour may reflect an interaction of cognitive and emotional factors and this can be captured more effectively using an approach that focuses on the interplay of different decision-making systems. In understanding the mechanisms affecting economic and financial decision-making, an interdisciplinary approach is needed which incorporates ideas from a range of disciplines including sociology, economic psychology, evolutionary biology and neuroeconomics.

European Regional Unemployment Disparities: Convergence or Persistence?

The reduction of regional unemployment disparities is a key prerequisite for the achievement of socioeconomic cohesion in an integrated European Union. This article examines recent trends in the evolution of regional unemployment disparities across a number of European member states to determine whether and how far this reduction is occurring. There is in fact little indication of any widespread convergence of regional unemployment rates. Instead, regional unemployment disparities across Europe appear to be characterized by a high degree of persistence. Furthermore, the evidence suggests that this persistence is an equilibrium phenomenon rather than the result of prolonged disequilibrium in regional labour markets.

An introduction to prior information derived from probabilistic judgements: elicitation of knowledge, cognitive bias and herding

Abstract Opinion of geological experts is often formed despite a paucity of data and is usually based on prior experience. In such situations humans employ heuristics (rules of thumb) to aid analysis and interpretation of data. As a result, future judgements are bootstrapped from, and hence biased by, both the heuristics employed and prior opinion. This paper reviews the causes of bias and error inherent in prior information derived from the probabilistic judgements of people. Parallels are developed between the evolution of scientific opinion on one hand and the limits on rational behaviour on the other. We show that the combination of data paucity and commonly employed heuristics can lead to herding behaviour within groups of experts. Elicitation theory mitigates the effects of such behaviour, but a method to estimate reliable uncertainties on expert judgements remains elusive. We have also identified several key directions in which future research is likely to lead to methods that reduce such emergent group behaviour, thereby increasing the probability that the stock of common knowledge will converge in a stable manner towards facts about the Earth as it really is. These include: (1) measuring the frequency with which different heuristics tend to be employed by experts within the geosciences; (2) developing geoscience-specific methods to reduce biases originating from the use of such heuristics; (3) creating methods to detect scientific herding behaviour; and (4) researching how best to reconcile opinions from multiple experts in order to obtain the best probabilistic description of an unknown, objective reality (in cases where one exists).

TRANSITORY SHOCK OR STRUCTURAL SHIFT ? THE IMPACT OF THE EARLY 1980S RECESSION ON BRITISH REGIONAL UNEMPLOYMENT

This paper examines the impact of the early 1980s recession on regional unemployment in Britain. More specifically, it seeks to evaluate the hypothesis that this recessionary shock was so severe that it caused an upward structural shift in the underlying mean unemployment rates of the regions. This proposition is analysed using Dickey — Fuller tests for difference versus trend stationarity, and the augmented structural shift and trend break time-series models developed by Perron. The results suggest that the apparent stochastic non-stationarity in regional unemployment over the period 1965 - 95 is in fact due to an upward structural shift in regional mean unemployment rates in 1980. Furthermore, the nature of this shift appears to have differed as between the northern and southern regions of the country.

Striatal BOLD Response Reflects the Impact of Herd Information on Financial Decisions.

Like other species, humans are sensitive to the decisions and actions of conspecifics, which can lead to herd behavior and undesirable outcomes such as stock market bubbles and bank runs. However, how the brain processes this socially derived influence is only poorly understood. Using functional magnetic resonance imaging (fMRI), we scanned participants as they made decisions on whether to buy stocks after observing others’ buying decisions. We demonstrate that activity in the ventral striatum, an area heavily implicated in reward processing, tracked the degree of influence on participants’ decisions arising from the observation of other peoples’ decisions. The signal did not track non-human, non-social control decisions. These findings lend weight to the notion that the ventral striatum is involved in the processing of complex social aspects of decision making and identify a possible neural basis for herd behavior.

Convergence or Divergence? The Impacts of Globalisation on Growth and Inequality in Less Developed Countries

Abstract This paper assesses the impacts of globalisation on the cross‐country comparative patterns of growth and development. In the theoretical section, some of the key linkages between growth, development and globalisation are explored including the positive and negative impacts of globalisation and the constraints on effective development in a globalised world. Some of the key factors emphasised include trade and capital flows as well as computerisation. These issues are then analysed empirically using σ and club convergence models, estimated using panel techniques. The empirical evidence presented indicates that globalisation has been associated with increasing trade and financial flows to less developed countries. It has also coincided with increasing penetration of the Internet suggesting that increases in informational flows have complemented economic and financial linkages, but the empirical evidence also shows that the current era of globalisation has not been associated with convergence in economic outcomes; instead less‐developed countries have suffered from increases in international income inequality. In the final section, conclusions and policy implications are presented including a discussion of how international and national development policies could be designed properly to ameliorate tendencies towards growing international disparities in economic growth.

Divergence in India: Income differentials at the state level, 1970–97

Abstract We examine Indias regional disparities in economic performance between 1970–97. Our preliminary analysis shows that, in absolute terms, initially poorer states grew at slower rates than initially wealthier ones and that there is also evidence of increasing dispersion of income levels across the states. Our econometric analysis investigates the possibility of club convergence and conditional convergence. Although we do not find evidence of the former, we can suggest some of the factors associated in the latter. Our research also indicates that the onset of economic policy reform in 1991 significantly intensified growth differentials between the states.

Are tourists willing to pay for aesthetic quality? An empirical assessment from Krabi Province, Thailand

This paper assesses the relationships between the viability of the tourism industry and willingness to pay for aesthetic aspects of environmental quality. Incentives to provide high-quality tourism are limited given asymmetric information, adverse selection and positive search costs, with implications both for the sustainability of the tourism industry and for environmental sustainability more broadly defined. An econometric model is estimated in which willingness to pay is captured using resort rents and related to aesthetic quality, after controlling for service levels. A negative relationship is found. Some policy issues are assessed, focusing on the implications for tourism as an engine for sustainable development.